3 Ways to Prepare for Refinancing Your Home


3 Ways to Prepare for Refinancing Your Home

Every homeowner dreams of having a few things upgraded around the house. Maybe you want a new kitchen with an island made out of marble instead of the granite that you now have or you want a new bathroom with a Jacuzzi in it. Maybe it is even something more essential like the roof needs a makeover. It doesn't matter what it is it will still cost you money.

The bigger the renovation project the more expensive it is going to be and let's face it, not very many of us have thousands of dollars just lying around waiting to be used. For most people, big projects around the home will call for a mortgage refinance, the cost of which could be astronomical.

Should You Refinance Your Home?

The simple answer to this question is: it depends! Why are you refinancing? For many people, the most common reasons for refinancing their home include:

  • To take advantage of lower rates  

  • To finance a remodeling project

  • They need the money for some other kind of investment

The reasons why you should and shouldn't refinance are just about as varied as the people on the planet. It all depends on your personal financial situation. However, financial pundits will tell you that refinancing for frivolities is a terrible idea any day of the week. If you are doing it for lower rates, then maybe it makes financial sense but if you are doing it to fund that alcohol-fueled weekend in Vegas then maybe you should take a minute and think about your choices!

Ways to Prepare to Refinance Your Home

Let's say that you have done the math and you have consulted all the financial Gurus in your life and they all agree that you have a solid reason why you should refinance your home. Once that decision is made, there are still some things that you need to do to prepare for the actual process. Here are three foolproof ways to prepare to refinance your home:

1. Take a Hard Look at that Credit Score

While it is true that the most important thing most lenders look at is your income and whether or not you can actually afford to pay them back the truth is most of them will also look at your credit score. It is the one thing that tells them whether or not they can trust you with their money no matter how much you earn.

In fact, you do not even have to wait till you have urgent need for a loan to check your FICO score. You are entitled to a free copy of your credit score each year from the three reporting bureaus. Take advantage of that to stay on top of your credit rating and do the necessary damage control and correction if and when they arise. It is just good financial sense.

2. Do the Math

Yes, getting a 30-year loan extension on your mortgage might seem like a wonderful idea at first but do the numbers add up? One of the main factors you want to consider include things like your retirement age. If you are only 10-20 years away from your ideal retirement age, then maybe taking up a 30-year mortgage loan isn't the right move right now. How about considering the 15-year loan term?

While the monthly payments and interest rates might seem a little stiff, taking up a 15-year loan term will ensure that all your repayments fall within your working years as opposed to it eating into your pension. Plus, the sooner you get this loan off your plate the more money you will have to throw into that "disposable income kitty".

3. Get Your Current Home Value and Papers in Order

The one thing you need to realize is that just because you own a home does not mean that you will automatically qualify for a mortgage refinance. In some cases, when the home value comes in too low, the lender might choose to deny your request for a loan. So, yes, you do need to get a new home valuation done and hope that it has gone up in value or at the very least, hasn't depreciated too much.

Another thing you need to know is that applying for a home refinance involves just as much paperwork as applying for a loan the first time. You will need (among other things):

  • Your tax returns for the past two years

  • Your pay stubs for the past few months (depending on the lender)

  • Proof of other forms of income if any

  • Bank statements and proof of assets

Lenders tend to be very cautious with their money so if you have any unusual withdrawals or deposits in those bank statements you better be prepared to have a good and plausible explanation for them. Mostly accompanied with paperwork as well.

You also need to find the right lender. Just because you got the original mortgage from your local bank does not necessarily mean that you have to use them again for the refinance. Although this is usually the most logical route to take, it is okay to try out other lenders if they are offering better deals. So do your research beforehand.

Meet The Author:

Susan Ranford

Susan Ranford

Susan Ranford is an expert on career coaching, business advice, and workplace rights. She has written for New York Jobs, IAmWire, and ZipJob. In her blogging and writing, she seeks to shed light on issues related to employment, business, and finance to help others understand different industries and find the right job fit for them.

Courtesy of NASE.org